Rigby & Kingston (No 2)
[2017] FamCA 953
•24 November 2017
FAMILY COURT OF AUSTRALIA
| RIGBY & KINGSTON (NO. 2) | [2017] FamCA 953 |
| FAMILY LAW – PRACTICE AND PROCEDURE – Where the husband seeks further and better disclosure from the wife – Where an application was also made to set aside a subpoena – Whether the documents sought by the husband are in the wife’s possession or under her control – Whether the subpoena was issued for a collateral purpose or for the purposes of disclosure – Whether the documents sought in the subpoena had apparent relevance |
| Corporations Act 2001 Family Law Act 1975 (Cth) Family Law Rules 2004 |
| Anderson & Anderson [2014] FamCA 491 |
| APPLICANT: | Mr Rigby |
| RESPONDENT: | Ms Kingston |
| FILE NUMBER: | BRC | 12882 | of | 2016 |
| DATE DELIVERED: | 24 November 2017 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Carew J |
| HEARING DATE: | 04 October 2017 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Kearney SC |
| SOLICITOR FOR THE APPLICANT: | Hopgood Ganim Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Williams |
| SOLICITOR FOR THE RESPONDENT: | Hartley Healy |
| COUNSEL FOR OBJECTORS: | Mr Sullivan QC |
| SOLICITOR FOR OBJECTORS: | Hede Byrne & Hall |
Order
Paragraph 2 of the application filed 22 December 2016 (interim orders sought) for further and better disclosure is dismissed.
The application to set aside the subpoena issued on 14 June 2017 is dismissed.
Leave is granted to the applicant and respondent to inspect and copy the documents produced pursuant to the said subpoena.
Notation
The Kingston Group referred to in the subpoena issued on 14 June 2017 comprises those entities set out in schedule 1 of the ‘umbrella deed’ annexed to the respondent’s affidavit filed 29 March 2017 at PMK-20.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Rigby & Kingston (No. 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC 12882 of 2016
| Mr Rigby |
Applicant
And
| Ms Kingston |
Respondent
REASONS FOR JUDGMENT
There are two matters before the Court for determination. The first is an application by Mr Rigby (“the husband”) for further and better disclosure from Ms Kingston (“the wife”). The second is an application to set aside a subpoena issued to the directors of B Pty Ltd on 14 June 2017.
background
The husband and wife married in 1991 and separated in 2015. They have two children aged twenty-three and sixteen respectively. The husband is 51 and the wife is 52.
In the substantive proceedings the husband is seeking a property settlement order pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”). The husband’s application is resisted by the wife on Stanford[1] grounds i.e. that it is not just and equitable to make any order.
[1]Stanford v Stanford (2012) 247 CLR 108
The husband’s assets are extremely modest.
By contrast the wife is a woman of substantial means and she estimates her personal wealth to be in the order of $11,000,000 (although she casts some doubt on the reliability of that estimate given alleged agreements with various governments and other voluntary conservation agreements which may impact on valuations).
The wife is the managing director of her family business referred to in the application for further and better disclosure as the Kingston Group[2] and in the subpoena as the ‘Kingston Group’. It seems the nomenclatures are used interchangeably. I will refer to it in these reasons as the Kingston Group. The application to set aside the subpoena is brought on behalf of the entities comprising the Kingston Group.
[2] See definition in the husband’s application filed 22 December 2016 and exhibit 1
The Kingston Group was established by the wife’s father in 1939 and built up over his lifetime to the date of his death in 2008. He made it clear to his children (and it is reflected in his Will) that he did not want any of the wealth he created to be shared with any spouse of his children. His three children are all involved in the varied operations of the businesses and investments conducted by the Kingston Group.
The wife received significant benefits from the Kingston Group during her marriage to the husband. The wife’s father established a testamentary trust (a discretionary trust known as the Kingston Testamentary Trust) pursuant to which the wife and her children and the wife’s two brothers and their children are beneficiaries. Upon cessation of the trust the wife and her two brothers are to share equally in the balance then remaining.
The testamentary trust was varied by the wife and her two brothers after their father’s death so as to significantly extend the cessation date of the trust. The deed that varied the trust was entered into by the wife and her two brothers on 13 February 2014 and is known as the ‘umbrella deed’. It also makes provision for matters relevant to the operation of the Kingston Group which is estimated to be worth in the vicinity of $150,000,000.
The ‘umbrella deed’ recites:
a)The wife and her two brothers are the remaining trustees appointed under their father’s Will;
b)Each of them work in the business/es [of the Kingston Group] and is entitled to share in any income or capital distributions made under the Will;
c)The wife and her two brothers wish to set out their intentions in regards to:
i)Their ongoing entitlements until 2040 (the cessation date of the trust);
ii)Their ongoing entitlements in the event that they retire etc;
iii)The ultimate winding up of the [Kingston Group] on the cessation date.
The Kingston Group is defined by reference to schedule 1 to the ‘umbrella deed’.
The underlying principles for the arrangement set out in the ‘umbrella deed’ are that, inter alia, unless the wife and her two brothers unanimously agree in writing to the contrary:
a)They shall remain active in the Kingston Group and share in the management;
b)They shall administer the Will according to its terms;
c)They shall each be paid an equal minimum annual dividend determined in accordance with an annual program and a share of profits not exceeding ten percent of net profits (the annual program relates to the Kingston Group);
d)In addition they shall each be paid a salary;
e)No other directors are to be appointed;
f)No further shares or units will issue in any entity within the Kingston Group;
g)No shares or units will be transferred or redeemed;
h)They must do everything required to wind up the Kingston Group on 30 June 2040.
The husband and wife entered into a pre-nuptial agreement prior to their marriage in 1991. The agreement was intended to ensure that each party’s property at that time and any property received by way of inheritance or acquired solely by one party would remain that party’s sole property. However, it is not contended by either party that the agreement ousts the jurisdiction of the Court to make an order under s 79 of the Act.
Rather, the wife contends that, as anticipated by the agreement, each party kept their financial affairs entirely separate and at the end of each month they prepared a reconciliation of the living expenses each had paid and if necessary there was an adjustment made to ensure their expenses were shared equally. This included expenses for the children. On occasions when the husband was unable to meet all of his expenses the wife advanced money to him pursuant to loan agreements which the husband subsequently repaid. While the husband does not dispute the keeping of ledgers as alleged, he contends that he was overborne by the wife to do so.
The parties have never had a joint bank account or joint credit card. They have never acquired property in joint names. They have never guaranteed the liabilities of the other. They were each free to spend their money and make investments as they wished.
The husband contends that he made substantial contributions to the improvement and conservation of property in the wife’s sole name over the years for which he was not recompensed. The wife disputes this claim and contends that any work undertaken by the husband was paid for at commercial rates.
At times during the marriage the husband was employed as a contractor for the Kingston Group but he contends he was underpaid. He received distributions as a discretionary beneficiary of the Kingston Group in order to minimise taxation for the Group and contends that he gave any such distributions to the wife save for the last distribution of $55,000 in 2015. The wife contends the distributions were made as a tax effective means of the husband repaying loans she had advanced to him.
The wife contends that while she always lived to a budget and was generally quite frugal the husband spent money as he earned it and made no savings or provision for his future. This did not concern her at the time given the agreement which they had reached prior to their marriage and to which she contends they both adhered.
In 2007 the husband contends that he commenced his own consultancy business in which he worked part time so that he could attend to the needs of the children and the household thereby enabling the wife to pursue her career within the Kingston Group. The wife rejects this contention. She contends that despite the husband working part time she continued to undertake the majority of household tasks until a cleaner and gardener were employed and she also contends that they shared the parenting responsibilities. She describes the husband as having a “lazy work ethic”.
When the matter was last before me on 11 July 2017 I ordered that the wife pay or cause to be paid to the husband the sum of $135,000 to be used for the payment of his legal costs but otherwise dismissed his application for interim property settlement, spouse maintenance and costs.
Outstanding disclosure issues and an objection to a subpoena were adjourned by consent.
the disclosure issue
The husband’s application
The husband applies for an order in the following terms:[3]
[3] See Minute of Order attached to case outline filed 26 June 2017
2. That within 28 days of the date of this order, the respondent wife provide by way of further and better disclosure the following:
a.In respect of all companies in the [Kingston] Group:
i.Copies of the constitution (or memorandum and articles of association) and any amendments or variations to the constitution;
ii.Copies of shareholder agreements;
iii.Copies of the complete financial statements (including all notes) for the past 3 financial years;
iv.Copies of the complete interim and / or management financial statements (including all notes) for the financial year ended 30 June 2016;
v.Copies of the last annual return lodged with ASIC;
vi.Copies of the complete tax returns (including depreciation schedules) for the past 3 financial years;
vii.Copies of the ledger for the loan accounts (if any) in the name of the respondent wife, applicant husband, [D] Pty Ltd; [E] Pty Ltd and the [Ms Kingston] Family Trust from inception to date of this order;
viii.Copies of valuations prepared in the past 3 years for;
1. Each Company
2. Real estate; and /or
3. Plant, equipment, stock and chattels
b.In respect of all trusts in the [Kingston] Group including but not limited to the [ Kingston] Testamentary Trust:
i.Copies of the trust deed and any deeds of amendment or variation to the trust deed;
ii.Copies of the complete financial statements (including all notes) for the past 3 financial years:
iii.Copies of the complete interim and / or management financial statements (including all notes) for the financial year ended 30 June 2016
iv.Copies of the complete tax returns (including depreciation schedules) for the past 3 financial years;
v.Copies of the ledger for the beneficiary load accounts and loan accounts (if any) in the name of the respondent wife, applicant husband, [D] Pty Ltd; [E] Pty Ltd and the [Ms Kingston] Family Trust from date of settlement to date of this order;
vi.Copies of the minutes of meeting of the trustee from 1 October 1991 (or later date of settlement of the rust as applicable) to the date of this order;
vii.Copies of valuations prepared in the past 3 years for:
1. Each trust;
2. Real estate; and /or
3. Plant, equipment, stock and chattels
c.In respect of all self managed superannuation funds in the [Kingston] Group:
i.Copies of the trust deed establishing the superannuation fund and the rules of the superannuation fund and any deeds of amendment or variation of the trust deed and rules;
ii.Copies of the annual return of the superannuation fund for the past 3 financial years; and
iii.Copies of the complete financial statements (including all notes) for the past 3 financial years;
iv.Copies of valuations prepared in the past 3 years for:
1. Real estate; and / or
2. Plant, equipment, stock and chattels
The husband’s substantive proceedings seek an order inter alia:
1. That subject to paragraphs 2 and 3 of the final orders sought, an account be taken of the property, liabilities and financial resources of the parties and their respective interests in entities (including but not limited to the respondent wife’s interests in the [Kingston] Testamentary Trust and all other companies, trusts and entities of the wife’s family known as the “[Kingston] Group” referred to as a notation to the interim orders sought below) and the net property be divided as to 65% thereof to the respondent wife and 35% to the applicant husband.
The Kingston Group is defined in the husband’s application by reference to twenty-one named entities and four catchall general descriptions of entities e.g. “any further entity (not falling in the [Ms Kingston] Group) in which the respondent wife as a direct interest or an indirect interest.”
The wife is a director of the corporations within the Kingston Group as are her two brothers. The wife is a minority shareholder in some of the corporations. The wife is a trustee of the trusts within the Kingston Group as are her two brothers and where there is a corporate trustee they are all directors. The wife is one of a number of beneficiaries in the discretionary trusts within the Kingston Group. The wife’s two brothers object to the production of the documents sought by the husband.
The wife maintains that she has complied and will continue to comply with her obligations of disclosure. She annexes to her affidavit a list of documents that have been disclosed by her to date.
Accordingly, the husband bears the onus of establishing that the wife has not fulfilled her obligations of disclosure. Specifically, that there are other documents that are or have been in her possession or control and that the documents are relevant to an issue in the case.
The duty to disclose
Each party in financial proceedings (subject to certain exemptions not relevant for present purposes) has a number of obligations including:
a)to provide full and frank disclosure of their financial circumstances including their income and any vested or contingent interest in property or a trust whether fully or partially owned or controlled by the party (see Rule 13.04 of the Family Law Rules 2004 (Cth) (“the Rules”);
b)to disclose any document, relevant to an issue in the case, which is or has been in the party’s possession or under their control (see Rule 13.07);
c)to exchange, as far as practicable, with the other party a copy of documents specified in Rule 12.02 if relevant (this includes copies of financial statements, constitutions, trust deeds etc. for a corporation or a trust for which a duty of disclosure arises by virtue of Rule 13.04);
d)to produce for inspection a document referred to in a document filed or served by a party on another party or in correspondence prepared and sent by or to another party (see Rule 13.08);
e)to file an affidavit setting out details of a claim to be unable to produce a document (see Rule 13.13);
A duty to disclose does not equate with a duty to produce as is apparent by reference to Rule 13.12 which provides that a party must disclose but need not produce a document that is privileged or has already been produced. The duty to produce a document must always be subject to two caveats. Firstly, that it is in the possession or control of the party and secondly that it is relevant to an issue in the case.
Requirement for documents to be in the possession or control of the disclosing party
In Schweitzer & Schweitzer[4] O’Reilly J dismissed an application by the wife for disclosure of financial documents of two trusts and minutes or resolutions of the corporate trustees of those two trusts relating to trust distributions. The husband was a director of two corporate trustees but not the sole director. The husband was not a shareholder of either corporate trustee but was a discretionary beneficiary of both trusts. It was held:
The fiduciary obligations which obtain in relation to directors of corporations and trustees (whether natural persons, or corporations) has effect that there is no right to “possession”, or “control”, in any personal capacity, but, as emphasised in Mills (above), Edman v Ross (above), Lonhro (above) and s 290(1) Corporations Act, there is only a right of access to documents, strictly for the purposes of the corporation or the trust.
[4] [2012] FamCA 445
In that case, where the husband deposed to his father (as appointor) of the trusts objecting to providing the documents O’Reilly J held:
The trusts are discretionary trusts. As is understood, thus, a beneficiary has no interest in the corpus, but only the right to require due administration of the trusts, and … is entitled to access to the financial documents of the trustees only for the purpose of ascertaining that there is due administration
O’Reilly J noted that there was no evidence upon which a finding could be made that the entities were the alter ego of the husband.
In Masoud & Masoud[5] the Full Court warned against elevating the duty of disclosure to an absolute obligation on a party to garner documents by any means. The Full Court cited O’Reilly J’s decision in Schweitzer with approval stating:
20.The meaning of “possession and control” has been considered extensively. For a document to be within the power of a party, the party must be in actual possession of it or must have an immediate indefeasible right at the time of discovery to demand possession from the person who has physical possession of it: see Lonrho Ltd v Shell Petroleum Co Ltd (No 1) [1980] 1 WLR 627. In Schweitzer & Schweitzer [2012] FamCA 445, O’Reilly J held at [45] that “possession” as contemplated by r 13.07 “means not mere physical possession (custody) but “possession” within the accepted meaning being “the legal right to possession”: see in B v B, per Dunn J at 805; 807”. Further, her Honour stated at [50] that a beneficiary of a discretionary trust “has no interest in the corpus, but only the right to require due administration of the trusts, and … is entitled to access to the financial documents of the trustees only for the purpose of ascertaining that there is due administration.” In the present case, therefore, the husband has no access to the financial documents of the trustees beyond that required to ascertain there is due administration. It cannot be said that he has the requisite “control” of the trust deed that would warrant its disclosure.
[5] (2016) FLC 93-689
Sections 198F and 290 of the Corporations Act 2001 (Cth) provide directors with a statutory right of access to books and financial records of a company however, the weight of authority suggests that a director’s access is limited to circumstances where the access is for a purpose directly related to the interests of the company or where a director is defending a claim made against him/her by the company.[6]
[6] Schweitzer (supra); Stern v Sekers; Sekers v Sekers [2010] NSWSC 59 at [251] - [254]; Dick v Alan Powell Holdings & Ors [2009] QSC 184 at [111] – [115]; Hardcastle v Advanced Mining Technologies Pty Ltd [2001] FCA 1846 at [23] – [25]; cf Kingston v Lomax [2014] FamCA 431
The wife is one of three directors in the companies within the Kingston Group and one of three trustees in the trusts including the Kingston Testamentary Trust. There is no evidence that the corporate entities or trusts are the alter ego of the wife.
In my view the documents sought by the husband are not in the wife’s possession or under her control in the relevant sense.
Accordingly, I propose to dismiss the husband’s application against the wife in relation to further and better disclosure.
objection to subpoena
The husband caused a subpoena to issue to the directors, B Pty Ltd (the accountant for the Kingston Group) requiring the production of particular documents, namely:
1.A copy of the Annual Programs referred to and/or produced in accordance with paragraph 3.1 of the Umbrella Deed between [Mr F Kingston], [Ms Kingston] and [Mr G Kingston] titled “Operation of the [Kingston] Group” dated 13 February 2014.
2.The bundle of documents titled “Consolidated Financial Statement of the [Kingston] Group for the financial year ended 2015” or in the alternative the separate documents titled:
a.[KINGSTON] GROUP Statement of Financial Position as at 30 June 2015;
b.[KINGSTON] GROUP Trading Account for the year ended 30 June 2015;
c.[KINGSTON] GROUP Detailed Statement of Financial Performance for the year ended 30 June 2015;
d.[KINGSTON] GROUP Profit & Loss Statement for the year ended 30 June 2015;
e.[KINGSTON] GROUP Notes to the Financial Statements for the year ended 30 June 2015;
f.[KINGSTON] GROUP Directors’ Declaration; and
g.[KINGSTON] GROUP Compilation Report to [Kingston] Group
3.The following documents in relation to the years ending 30 June 2016;
a.[KINGSTON] GROUP Statement of Financial Position;
b.[KINGSTON] GROUP Trading Account;
c.[KINGSTON] GROUP Detailed Statement of Financial Performance
d.[KINGSTON] GROUP Profit & Loss Statement;
e.[KINGSTON] GROUP Notes to the Financial Statements;
f.[KINGSTON] GROUP Directors’ Declaration; and
g.[KINGSTON] GROUP Compilation Report to [Kingston] Group
4.Interim financial statements in relation to the [Kingston] Group for the year ended 20 June 2017
Despite the deficiencies with the subpoena and its service, the entities within the Kingston Group that object to the subpoena are represented and seek the dismissal of the subpoena on substantive grounds.
It is not in contention that the documents exist.
Accordingly, I propose to deal with the objection on the basis of the substantive grounds raised and fully argued.
The substantive grounds for seeking to set aside the subpoena are:
a)The subpoena has been issued for a collateral purpose, namely, to determine if the husband has a claim against the Kingston Group and as such is an abuse of process;
b)The subpoena has been issued as a ‘disclosure tool’ in that it was issued prior to the determination of the application for further and better disclosure against the wife and as such is an abuse of process; and
c)The documents sought are not relevant to an issue in the substantive proceedings.
Collateral purpose
It is submitted by Mr Sullivan QC, on behalf of the objectors, that the purpose of the subpoena is really a ‘fishing’ exercise to determine if the husband might have a claim against the Kingston Group or one of its many entities. If the subpoena were issued for that purpose it would be an abuse of process.[7]
[7] Commissioner for Railways v Small (1938) 38 SR (NSW) 564; Hennessy v Wright (No 2) (1888) 24 QBD 445; Anderson & Anderson [2014] FamCA 491
It is correct that Mr Wilson, solicitor for the husband, refers (in his affidavit) to an inability to advise the husband about a potential claim against the entities within the Kingston Group without further disclosure from the wife. However, as Mr Kearney SC submitted, an order pursuant to Part VIIIAA of the Act is ancillary to an order made pursuant to s 79 and I accept that is the context in which reference to a claim is made.
The significant issue in this case is what value should be attributed to the wife’s interests in the Kingston Group. It is apparent from the terms of the ‘umbrella deed’ that her interests (in the broadest possible sense) are not limited to the interest she has a shareholder in four companies or her interest as a discretionary beneficiary in four trusts. She has an ongoing entitlement to share in the profits of the Kingston Group and to receive a one third share of the net balance upon realisation of the Kingston Group in 2040.
The documents sought pursuant to subpoena are likely to assist in identifying the wife’s interests in the Kingston Group (whether or not those interests are ultimately found to be property for the purposes of the substantive proceedings or a financial resource).
Accordingly, I am not persuaded that the subpoena was issued for a collateral purpose.
Disclosure tool
It is submitted on behalf of the objectors that as the subpoena was issued prior to the determination of the disclosure issue as between the husband and the wife it should be set aside as an abuse of process. While there is no doubt some force in this argument, given my conclusion in relation to the disclosure issue sought against the wife I consider it to be a timely and cost effective means of resolving this issue particularly as it has been fully argued before me.
The documents sought in the subpoena are clearly identified and for limited periods. Unlike a number of the authorities relied upon by the objectors the subpoena does not require the objectors to ‘ransack records’ or make judgments about whether a document falls within some category of generalised documents.
Relevance
In order to view the documents produced pursuant to subpoena the husband must establish apparent relevance as explained in National Employers' Mutual General Association Ltd v Waind and Hill [8] and adopted by the Full Court in Hatton v Attorney General of the Commonwealth of Australia and Ors:[9]
…production of a document on subpoena by a stranger is only required if the document is sufficiently relevant to the action in the sense that it is likely to add in the end, in some way or other, to the relevant evidence of the case.
[8] [1978] 1 NSWLR 372 at 384
[9] (2000) FLC 93-038
In the current case the parties were married for twenty-four years and each made financial and non-financial contributions and contributions to the welfare of the family. That does not mean that a court will necessarily determine that it is just and equitable to make an order but, a court must firstly identify the existing legal and equitable interests of the parties in property and, if it is determined that it is just and equitable to make an order, the wife’s property and financial resources are relevant to the determination of what order is appropriate.
The wife’s property or financial resources include her direct and indirect interests in the Kingston Group. Under the ‘umbrella deed’ the wife is one of only three members and she has an entitlement to receive a salary (for so long as she continues to work for the Kingston Group), dividends and a share in the profits of the Kingston Group. In addition, at the cessation date (in 2040) she has an entitlement to receive a one third interest in the net balance (after the assets are realised and liabilities paid out) of the Kingston Group. Her entitlements relate to the entire Kingston Group.
I note that wife through her lawyers communicated to the husband’s lawyers on 15 June 2016 proposing that the wife’s accountants prepare a summary of the consolidated assets and liabilities and profit and loss of the Kingston Group with the intention of providing an “indicative value as to size of any future resource that [the wife] has” and also “prepare details as to any future receipts from the Kingston Group”. It would seem that the wife, at least, acknowledges the relevance of the documents now sought pursuant to subpoena.
In my view the documents sought by the husband do have apparent relevance to an issue in the case. Accordingly, I propose to dismiss the application to set aside the subpoena.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Carew delivered on 24 November 2017.
Associate:
Date: 24 November 2017.
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